The correct option is
B 2000
Preference shares are the only one which can be redeemed or returned back to the shareholder. The company prefers to issue new equity shares to fund the redemption process. The first step is to find out the preference shares to be redeemed and it can be calculated as follows:
Amount to be redeemed= Numberofshare×Marketvalueof share
Substitute the given information in the above equation
Amount to be redeemed= 650shares×Rs110=Rs71,500
Balance in reserve & surplus with the company= General Reserve+Security premium reserve =Rs45,000+Rs1000 =Rs46,000
Net amount to issue new equtiy= Rs71,500-Rs46,000 =R25,500
Thus, the company needs to issue new equity to redeem Rs71,500 preference shares. And this can be calculated as under:
Equity to be issued=AmounttoredeemMarketvalueofshare
Market value of share= Face value+Premium =Rs10+Rs2.50 =Rs12.50
Substitute the given values in the above equation
Equity to be issued=Rs25,500Rs12.50=2,040shares
Thus, the company need to issue 2,040shares at Rs12.50 to redeem the preference shares,